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Redefining public-private partnerships

Accenture explores how governments can gain cost reductions by using public-private partnerships to deliver better outcomes and create better financing.

Overview

Recognizing the need to innovate, public administration service leaders must inspire new solutions to serve the demands of the global economy—but they need not do so alone. By redefining the existing relationship between public and private organizations, opening up greater trust and transparency, public service agencies can forge new ways of working to co-deliver public service for the future.

Accenture explores how governments can gain cost reductions by using public-private partnerships to deliver better outcomes and create better financing. We identify four fundamental elements to enable successful public-private partnerships. These four elements should influence the partnership, not only from a formal business perspective, but also in terms of the general mindset between the two parties.

Public-private partnerships can add value. In the short term, this may be implied value from lowering the transactional cost from ex-ante and ex-post contract management. In the long run, public-private partnerships can breed innovation using a new delivery model that helps public administrations navigate the shift toward delivering public service for the future.

Background

Established in the early 1990s, the concept of public-private partnerships is not a new one. However, faced with contractual, legal and financial challenges, public-private partnership business models can vary considerably across countries and are often misunderstood. Despite being more often aligned to creative financial arrangements, a public-private partnership “on its best day” takes into account many other factors beyond finances—objectives, risk, innovation and successful outcomes. Gone are the days of being locked in to suppliers with 10-year fixed rate contracts on favorable terms. Public administration leaders must explore every option for improving productivity and delivering sustainable public service for the future.

So what is a public-private partnership? Although there is no single definition, Accenture sees a public-private partnership as a long term, risk-sharing contract between public administrations and private entities expressed in a formal agreement or concession contract. Public-private partnerships include the bundling of different services that are subject to both indirect and direct private financing. Payments made during the public-private partnership contract period by the public sector to the private partner are linked to outcomes actually delivered.

Analysis

Public administrations and private sector organizations have much to learn from each other; while the private sector’s delivery model is primarily motivated by profit gains, the public sector’s operating models are focused on well-documented quality measures and the risks associated with the political priorities, which are important elements in the drive for value. In the words of the old proverb “two heads are better than one” and public-private partnerships can help deliver a procurement relationship that not only serves business-critical needs but also accounts for a high degree of complexity by:

Public administrations gain better outcomes: Applying outcome-based contractual arrangements rather than activity-based requirements is one way that public-private partnerships can seek to add value beyond a standard contract.

Creating better financing: Employing models of risk/reward sharing is a further way that public-private partnerships can realize value.

When executed wisely, public-private partnerships offer an alternate route to realizing investments that will lead to citizen satisfaction when existing public funds are limited.

Recommendations

Trust and transparency are essential for effective public-private partnerships; by teaming their talents, public administrations and private sector organizations can find themselves migrating from a straightforward buyer-seller relationship to working at the cusp of the kind of progress and innovation that can help foster economic growth. With public sector spending constituting seven percent of the European Union Gross Domestic Product,1 the prospect of influencing fiscal recovery is compelling.

By building trust between both parties and understanding each other’s motivations in the context of risk, financing and time, public-private partnerships can flourish and offer many benefits. In addition to being effective in their own right, when introduced as a component within an existing formal contract, they could demonstrate themselves to be a lifeline for cash-strapped public administrations to deliver public service for the future.

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